Croda Announces Majority Sale of Its Industrial Businesses; Raising Fair Value Estimate 5%

Narrow-moat Croda announced it has signed a definitive agreement to sell the majority of its industrial businesses to Cargill Velocity Holdings for EUR 915 million (GBP 778 million). Shares ended flat on the day of announcement. The carve-out represents 77% of revenue in Croda’s performance technologies and industrial chemicals segments. The valuation is broadly in line with our previous estimates and results in a 5% increase in our Croda fair value estimate to GBX 5,150. With this divestment, Croda has completed its transition to a pure play consumer chemicals company focused on consumer care and life sciences. While we think certain parts of Croda’s remaining business have wide moats, such as active ingredients for personal care, we are retaining our narrow moat rating given some uncertainty around ROIC sustainability in the rapidly evolving life sciences segment. Regardless, an upgrade to wide moat would not change our view that the stock is significantly overvalued.